Should India replace its public food distribution system (PDS) with cash transfers? The question, which sparked lively debate among opponents and supporters of such transition, somewhat epitomizes a longstanding quandary on when is it best to provide food instead of cash for food security.

To be sure, discussions on ‘cash versus food’ are shaped by a range of issues. For instance, political economy realities tend to influence what is provided to recipient countries or households. Also, in-kind food is often considered ‘paternalistic’, but in practice people’s preference for food or cash may hinge on season, price levels, gender, or simple pragmatism. In the case of India, for example, a recent study shows that where the PDS work well people prefer food, and vice versa. Moreover, in some societies the distribution of food may symbolize a sense of unity, while in others it may evoke the image of past famines. In short, there are many variables that need to be taken into account for a balanced and credible debate.

Yet an emerging narrative calls for cash as a first-best option. Do we have enough evidence to accept or reject the ‘give cash, not food’ motif?

The good news is that there is new evidence to inform the debate. In my paper ‘Our Daily Bread’, I examine the findings from robust impact evaluations that, to my knowledge, directly compared cash and food transfers in the same setting. What do these show?

In the United States, a comprehensive review concluded that “… virtually every study finds food stamps increase household nutrient availability at 2 to 10 times the rate of a like value of cash income”. Possible explanations for such ‘cash-out puzzle’ include a sense of moral obligation among beneficiaries to use in-kind transfers for their intended food consumption purpose; different intra-household preferences and behaviors; alterations in household budgeting and planning of monthly purchases; or possible stigma associated with in-kind transfers.

The studies show that, on average, the difference in impact of cash and food on food security tends to be moderate. There are cases where such differences are more marked (e.g., cash being on average more effective in enhancing food consumption, while food seems better in increasing household caloric intake), although in most cases they are not statistically significant. The figure below shows the average differences (and ranges) in impacts for 5 indicators (i.e. positive values indicating better performance of food, and negative ones signaling higher impacts of cash).[Note: differences are ‘impacts of food minus impact of cash’. Differences in food consumption, calorie intake, and anemia are expressed in percentage points; differences in food consumption scores and dietary diversity index are in indices’ values.]

Why does the effectiveness of cash or food transfers vary? The paper finds that the profile and ‘initial conditions’ of beneficiaries matter, including their initial levels of calories. Dietary diversity can be influenced by the quality and composition of commodities that constitute the food transfer (which can range from 1 up to 11 products). Consumption and spending patterns can also be affected by how cash transfers are delivered (e.g., manually or electronically) as well as by program duration. Market conditions are also key: for example, sudden and sharp food price increases can hamper the relative ability of cash transfers in closing households’ ‘food gap’ (or number of months of food shortage).

What do we know about food or cash having longer-term effects on children’s malnutrition or cognitive development? Only two studies explored the question. One of these (Uganda) found that cash reduced the incidence of anemia, increased children participation in early childhood development centers, and enhanced several cognitive domain scores. Food, instead, had no impact on these dimensions. The other study (Cambodia) found no impacts by either transfer modality on anthropometric indicators (i.e., height and weight of children), including due to small transfer size.

In terms of efficiency, the paper shows that food tends to be at least twice more costly than cash interventions. However, only a few evaluations accounted for beneficiaries’ transaction costs, such as travel expenses and waiting time. Similarly, analyses seldom tracked the evolution of cost structures over time or accounted for economies of scale.

To sum up, if impacts are similar on average, and costs seem generally more favorable for cash, can we ultimately conclude that cash is a preferred option?

The analysis suggests being cautious about such a conclusion. Relative effectiveness can only be gauged on case-by-case basis and is a function of the specific objectives of an intervention, the way they are measured, the characteristics of target populations, program design, and context (including market conditions). Also, available cost analyses are indicative of relative efficiency, but they are far from matching the quality standards of RCTs, for example. These nuances seem to stand in between what may be first-best in principle and what may be so in practice.

What’s next?

A dozen evaluations are just a new beginning, not the end of the debate. The studies, in fact, exposed a number of information gaps: clearly, the improvement and standardization of methods for cost-effectiveness analysis is a key priority; also, while nutritional improvement is a central issue, the comparative evidence base is limited. Vouchers seem an underexplored modality, particularly as they can now, just like cash, be delivered through a range of technologies. Many other issues remain pending, such as the long-term effects on local markets, the implications on intra-household and community relations, the connection of transfers to people’s preferences, or the perceived ‘dignity’ in receiving cash rather than food.

While the reviewed evaluations do not address all of our questions, they are helping to move the debate from one largely shaped by ideology and political economy to one centering on robust and context-specific evidence.

Comments

This is a great, detailed piece of work, and a real contribution. I think an interesting challenge to comparing these programs is that in-kind food transfer programs tend to have one central goal: Improve food security. Cash transfer programs, on the other hand, tend to have a broad range of goals: Improve food security, improve school enrollment (or attendance, or both), improve health investments (beyond nutrition), etc.

My intuition (not backed up by specific evidence) is that cash transfers would be better for achieving these other goals, simply because cash is more fungible. I actually think that's what's behind the idea that "cash is a first-best option": Not that cash is better at achieving food security, but that cash is better at letting the poor achieve whatever it is they need to achieve.

Does your paper or the papers you examined look at other outcomes (e.g., education, health), and is there a tendency in the findings?

Thanks Dave for your comment, very good point. Cash transfers are indeed fungible and can have a broad range of objectives. Your question, therefore, somewhat speaks to the trade-off between providing choice and promoting a desired outcome. Given the small transfer size examined in the studies (about 12% of household monthly consumption), there might be a tension between, on one hand, the flexibility in spending small amounts of money across multiple dimensions and, on the other hand, the expectation to achieve substantial impacts across the board because of the same transfer. (This tension may be relaxed when the transfer size is larger, such as in the case of cash grants a la Liberia or Uganda). Hence the importance of being very clear about program objectives. But yes, the studies are generally geared toward food security goals and, with few exceptions (e.g. Cambodia looking at education outcomes), there is little comparative evidence on dimensions such as health and nutrition.

This is an interesting discussion also for a non economist. I am wondering though is there any measure of the impact of cash transfers on local food prices over time? One could easily imagine some sort of inflationary impact. A food distribution system while costly might give the government a possibility to control food price inflation somewhat simply because it would be a price maker due to the size of such programs. Otherwise clearly from the government's (MoF) perspective since cash transfers are cheaper to handle by a factor of two they would be preferable if leakages along the distribution chain are manageable. The poor themselves are also likely to be better placed than anyone to determine what their highest priority is, albeit granted it may be different across demographic segments within a family and of course whether it satisfies immediate consumption needs or helps build longer term resilience. Finally, do cash transfers not drive price inflation of the goods and services the poorest need? Or do transfers function as some sort of economic stimuli, benefitting the poor only indirectly by affecting the local economy?

Thank you, you raised several interesting points. Of course, the impact on local prices works in both directions, with food possibly decreasing food prices and cash potentially increasing them. Whether one or the other is desirable – say, food prices increases – is sometimes known as the 'food policy dilemma' - that is, it depends on factors like whether the poor are net (subsistence) producers or consumers, as well as on basic parameters such as the elasticity of supply and demand, and transfer size. To my knowledge there are some anecdotes of causality between transfers and prices. Examples that come to mind are the paper by Chabot and Dorosh examining the effects of food transfers on wheat prices in Afghanistan (a reduction of 15%) (http://www.sciencedirect.com/science/article/pii/S0306919206000789), and an assessment by Creti documenting some cash-induced, short-term price increases in Northern Uganda (http://www.humanitarianlibrary.org/sites/default/files/2014/02/impact_of_cash_transfers_on_local_markets_text_only_0.pdf). But it'd be interesting to conduct a more comprehensive review of the evidence on transfer-price causality of both cash and food transfers.

Great post, but you ignore a very large issue in the debate over potentially replacing PDS with cash transfers in India. Over-generalizing only slightly, most people who argue for replacing PDS with cash transfers believe a) that there are large leakages in the existing PDS, b) that these leakages could be reduced in a cash-based system and c) that this potential reduction in leakage dwarfs all other considerations. The studies you cite all compare a well-functioning cash transfer systems with a well-functioning food distribution system. So while this evidence is great, it doesn’t directly get at the core point of debate between those in favor of food and those in favor of cash, at least in India. Answering this question is obviously extremely difficult, but worth at least attempting.

Great point, the leakage issue is indeed important. I am not sure that all the assessed studies include ‘well-functioning’ programs, especially since some were newly-established. But besides that, with cash you definitely don't need to manage and organize a supply chain, fair enough. Yet there are counterarguments to your legitimate points. For example, one should not assume that cash transfer schemes may be immune or less prone to leakages – that depends very much on how such programs are set-up, the infrastructure underpinning them, and local administrative capacity. Also, the use of technology to enhance accountability throughout food supply chains may reduce the leakages you mentioned: how much they would do so, and how would that compare against cash transfers, is an empirical question worth exploring. So there may be at least as much scope to improving an existing program as there is to considering alternatives. The point is that the use of cash transfers could well be a more efficient solution, but this should be the outcome of an informed discussion around why leakages exist, where they exist, and how to address them, including considering ways to improve available modalities versus replacing them (by the way, one may also consider vouchers...). Cash transfers may not be a panacea for leakages – ‘how’ transfers are managed is key, not necessarily ‘what’ is provided.

Thank you for this post. Our research group at UC Berkeley is interested in this question in the HIV context. We are conducting a randomized trial in Tanzania to compare the effects of conditional food and cash assistance for food insecure people living with HIV infection on adherence to antiretroviral therapy (NCT01957917). In addition to the food and cash transfer arms of the study, we have a comparison group who receives the standard-of-care adherence and nutrition counseling. We hope to contribute evidence to this important debate when our study is complete in 2015.

Thanks Ugo - I really enjoyed reading your post and the associated paper. I think from the comments above you have helped spur a great discussion. To follow on from some of the earlier comments and your own suggestions, it seems that a detailed understanding cost-effectiveness is somewhat lacking. For example, understanding the costs associated with leakage rather than just delivery costs between modalities, the likelihood of leakage between modalities, and the benefits beyond food security that any of the modalities might bring.
By the way there was really interesting research on the price effects of in-kind vs. cash transfers by J-Pal in southern Mexico: http://www.povertyactionlab.org/evaluation/price-effects-cash-versus-kind-transfers. In this one study they find price decreases for in-kind transfers, which translates into a real welfare gain (who are net consumers) for recipients. However, it is just one study/piece of evidence.

Thanks Laura for the comment and link. Yes, I think that the studies' approaches to cost-effectiveness were quite fragmented and it'd be important to standardize and nuance them further, e.g. drawing from methods applied by Caldes et al. (2006) in World Development and earlier work by David Coady and others on Mexico. I like the way you summarized some of the tipping points, it would be great to examine them in a comparative mode.

Very interesting article.
The Cash Learning Partnership for which I work had been looking into Factors Affecting the Cost-efficiency of Electronic Transfers in Humanitarian Programmes, which you may find interesting and which would also deserve further research.

As a first year student in business and economical sciences, your article stimulated some thought. The distribution to the poor should be regulated and the method is definitely not cash. Maybe it could be considered to distribute food vouchers in cooperation with national chain. The arrangement should be to distribute nutritious hampers. The benefit of such a system would be stimulation of farming industry and subsequent job creation. By supplying nutrition, the health system will become less burdened. In South Africa we have a cash distribution and it proved to be very vulnerable. Cash are most of the time used for substance and other habitual expenses. Voucher/stamps will supply to the needy what the government intend it do. Cash will always have the risk of misappropriation.